5 Semiconductor Stocks To Love (And 6 To Worry About)

• Michael McConnell, Pacific Crest's semiconductor analyst, visited Asia to observe first-hand the state of the semiconductor market.
• McConnell noted he left "incrementally more positive" on fundamentals at five companies, and "incrementally more cautious" at an additional six.
• McConnel added that conversations with Asian distributors confirm that the industry is "not getting worse."

Michael McConnell visited Asia to gain a first-hand perspective of the semiconductor market by holding discussions with Asian distributor and suppliers.

According to McConnell's conversations, he is expecting sales to track "flat" in the second quarter, "well below" the normal seasonality of double-digit sequential growth. At the same time, third quarter sales were "adversely affected" by weak demand in China, particularly in the smartphone and base station end markets. However, the analyst noted that demand for Apple Inc. (NASDAQ: AAPL)'s devices was an "outlier of strength."

Looking forward, McConnell pointed out that distributors are expecting a "modest seasonal decline" in resales on a sequential basis in the fourth quarter. In addition, distributors believe that sequential resales growth may not materialize until the second quarter of next year.

'Incrementally More Positive' On Five Companies

McConnell stated that he is "incrementally more positive" on the following five firms following his trip:

• Avago Technologies Ltd (NASDAQ: AVGO) (Overweight rated, $180 price target) has "limited" exposure to China and a "robust" iPhone 6s ramp.
• Intel Corporation (NASDAQ: INTC) (Overweight rated, $35 price target) is seeing reaccelerating data center orders and PC component restocking.
• Microchip Technology Inc. (NASDAQ: MCHP) (Sector-weight rated, no assigned price target) is seeing "steady demand" from automotive, industrial and Internet of Things customers in China.
• NVIDIA Corporation (NASDAQ: NVDA) (Sector-weight rated, no assigned price target) is seeing share gains versus peers, but the ongoing Samsung litigation and uncertainty surrounding the end of the Intel cash payments after 2016 remain long-term concerns.
• Skyworks Solutions Inc (NASDAQ: SWKS) (Overweight rated, $110 price target) should see "robust" near-term demand trends and a "strong" 2016 outlook given the shift to module architectures.

'Incrementally More Cautious On Six Companies

McConnell stated that he is "incrementally more cautious" on the following six firms following his trip:

• Marvell Technology Group Ltd. (NASDAQ: MRVL) (Sector-weight rated, no assigned price target) is seeing continued losses in the SSD controller market while its "limited" data center exposure and ongoing accounting issues remain key concerns.
• ON Semiconductor Corp (NASDAQ: ON) (Sector-weight rated, no assigned price target)'s Aptina share loss prompted a revised 2015 and 2016 earnings per share outlook to $0.84 (from $0.88) and $0.96 (from $1.04), respectively.
• Qorvo Inc (NASDAQ: QRVO) (downgraded to Sector-weight from Overweight, no assigned price target) faces near-term risk to both out-quarter estimates and growth prospects in 2016 given "continued struggles" of its "key' customer, Xiaomi, coupled with "no upside opportunity" at Apple.
• Synaptics, Incorporated (NASDAQ: SYNA) (Sector-weight rated, no assigned price target) is seeing "limited" design-win traction in fingerprint sensing and second sourcing at Samsung.
• Xilinx, Inc. (NASDAQ: XLNX) (Overweight-rated, $55 price target) is seeing a "lackluster" base station demand, but its long-term thesis of growth from data center acceleration and market share gains remains intact.